Banking Law

There are many things written by New York Times columnist Joe with which I do not agree, but his column in last Friday's edition that raked over the coals the report released last week by the four Republican members of the Financial Crisis Inquiry Commission was, in many respects, spot-on.

After a year and a half of hearings, including questioning over 800 witnesses, reviewing millions of pages of documents, and spending some $6 million in taxpayers? money, its final report is due to be delivered in a month.

Except that in Washington these days, there is no such thing as bipartisan. On every major issue facing the country, Democrats and Republicans have competing narratives. Why should anyone expect anything different when it comes to the origins of the financial crisis?

Although commission members had long made a show of trying to work collaboratively, there was always a fair amount of underlying tension. Some of that tension had to do with the internal dynamics of the commission ? the general sense of chaos, for instance, and the supposedly autocratic style of its Democratic chairman, Phil Angelides.

But more recently, it has had to do with the growing tug of war between the commissioners over which financial crisis narrative would win out. The Republican minority, fearing their view would get short shrift, pre-emptively put forward a CliffsNotes version of their theory of the case. In other words, they responded to a report that hasn?t even yet been written, much less read and voted on by the members.

One of the major consequences of this "presponse" (as Nocera whimsically names it) is that the final report, to be issued within a month, will not be taken seriously by anyone as a truly "bipartisan" effort, which was the purpose of creating the commission in the first place. I know, "realists" will argue that the real purpose was to give cynical politicians "cover," to appear to be doing something to determine the root causes of the collapse, while knowing full well that partisan bickering would derail any serious results. Still, a few of us hoped that perhaps some seriously hard looks would be taken at both dysfunctional public policies and private practices so that a serious discussion might take place about the proper role of government in the mortgage markets, the advisability of regulatory reform for both the regulated and the regulators, the culture of greed on Wall Street and its apparent spread to many street corners on Main Street, and the extent of the culpability of mortgage borrowers, including blog writers, in this systemic failure. A small hope was that perhaps the pain of this crisis might force all of us, even the ethically-challenged clowns we keep electing to public office, to take a serious look in the mirror.

Yes, you're correct: I am a putz.

As Lita Epstein at Housing Watch bemoaned last April about the bickering over the FCIC:

Once again, everybody is pointing fingers at everybody else, and likely no one will take responsibility for their actions. The only thing we'll probably ever know for sure is that the taxpayers will foot the bill for corporate greed and governmental mistakes in judgment.

 

At this point, I don't expect the Democratic majority of the FCIC to be any less partisan than the Republican minority, although we won't for sure until the final report is issued, will we? Nocera may or may not be wrong about his disagreement with American Enterprise Institutes's Peter Wallison, who contends that the disastrous foray of Uncle Freddie and Aunt Fannie into Alt-A and beyond was motivated primarily by political pressure, not private market forces. I think both factors played a role and I frankly don't care which one might have been a qualitatively more lethal motivator. The people who ran Fannie and Freddie should have been of made of "stuff" sufficient to resist the temptations to breach the public's trust from wherever those temptations came. Like me, however, Nocera's willing to concede that he might be wrong and Wallison right, but he also wants to wait and see what the FCIC has to say in his final report about it. The fact that he can concede that he's not infallible is a striking admission in an era when partisan opponents regard honest self-appraisal as a sign of weakness rather than strength.

As much as my personal political and economic preferences lean toward those of Wallison, I support Nocera's concluding paragraph.

I?m all for reforming Fannie and Freddie. Who isn?t? But at this stage of the game, you can?t reform the G.S.E.?s without reforming the private market too. That may not be where the Republicans? theory of the case takes them. But it happens to be true.